The growth conundrum

Economic growth has been a contentious issue, at least from the 1970s when it was felt that the GDP was not a good enough measure to get a true picture of the people’s lives. It was then that the Human Development Index (HDI) was evolved to measure the quality of life of people in terms of health, nutrition, education and standard of living.

The GDP vs HDI battle continues, with the GDP advocates falling back on the argument that ‘the rising tide raises all boats’, and the HDI partisans pointing to the harsh fact of gaping inequality of incomes. Some of the economists on the GDP side had argued that the concern should be of eliminating absolute poverty, and that inequality can be ignored for the moment.

But it has not been easy to hold the truce because the challenge was of sustaining growth which seemed to be cyclical, bringing more misery to the poor than to the rich. If too many people become too poor due to the growth cycle, then this will impact and impair the GDP number. So, sustainable development became an imperative.

Sustainable development was also seen as necessary to fight the challenge of climate change because climate change posed a threat to the cosy assumption of an ever-growing economy. Many of the things assumed by HDI and sustainable development required state action, and this was considered necessary even in the freest of free economies. So, governance has become an issue as well in matters of economic growth.

Bengaluru-based Public Affairs Centre (PAC) has taken the GDP/HDI issue head on in its annual survey of governance among Indian states and evolved the Public Affairs Index (PAI) and ranked the performance of the states in terms of governance for 2020, an exercise it had begun in 2016. The index is based on the three vectors of growth, equity and sustainable development, and they are tested on the parameters of rule of law, government effectiveness, regulatory quality, control of corruption, voice and accountability.

This is a comprehensive checklist. But this is applied at the level of the states and not at the national level. PAC Director Gurucharan Gollerkeri, a former bureaucrat who worked in the Karnataka government as well as at the Centre, points to the critical lacuna in the developmental programmes, in the Preface: “…the influence of a ‘one-size fits all’ approach on our development outlook has been pervasive and the overwhelming majority of interventions, including centrally sponsored schemes, designed and implemented uncritically and mechanically, unwittingly perhaps, subverting the doctrine of objective pluralism.” This is indeed a terse formulation of the real issues at stake in the developmental agenda.

In some ways, the PAC premise that what the governments do is of utmost importance in fighting poverty and inequality, is acknowledgement of the fact that India remains a developing country even after 30 years of economic reforms and though it has acquired the label of ‘emerging economy’, state intervention is crucial for a large section of vulnerable people.

The report looks at the ‘competitive imperatives’ between implementing national policy objectives, which have to be necessarily done by the state governments, and the report curiously uses the phrase ‘sub-national governance’ to refer to the state governments’ responsibility, and the local exigencies. The report pointedly refers to two of these issues. First, the ease of doing business index of the World Bank, and the labour reforms that go with it. The state governments in the absence of a protective net of social security is forced to fall back on welfare measures for the workers.

State subject

Second is the issue of doubling farmers’ income, which is again a national policy goal, but agriculture is a state subject and it is the state governments that shape specific measures to fulfil the objective. And the report notes the fact of “the inadequate pace of agrarian reforms across India illustrate the divided state of mind in which state governments address the difficult task of envisioning the future of the Indian farmer.”

The rankings of the states on the basis of the three pillars of growth, equity and sustainability, and the Composite Index, which is the PA Index, reflects a complicated reality rather than a picture of the victory podium as to who stands first, second and third. For example, under the Equity Pillar, the parameters are exhaustive, which include proportion of population under social protection, proportion of seats held by women in state legislature and local government, rural indebtedness, worker population ratio (female). Quite fairly, the states are divided into large, small and Union Territories (UTs) and the comparative rankings make sense because the competition is among near equals.

The drive of the national parties has been to collapse the federal structures as far as possible with the intention of achieving efficiencies. The BJP government under Prime Minister Narendra Modi is pushing for single systems that hold across the country, and this is the base for the GST based on one nation, one tax, though the GST Council comprising state finance ministers and consensus as the proviso for making decisions stands for symbolic federalism.

But the PAI report argues with much justification that the economic development of the country will depend on the performance of the states, and that the take-off conditions in the states are too different in terms of resources, and the stage of social and political development diverse creating a situation of inherent inequality, and each state has to develop from its own starting point.

The report draws the right conclusion that the ‘revolution of devolution’ must be continually pushed from the centre to the states and from the states to rural and urban local bodies. The report, however, accepts the fact that national initiatives have created a certain amount of convergence towards growth and equity and sustainable development, and each one of them gives a push to the other.

(The writer is a New Delhi-based political commentator)